Revisiting Critical Illness Insurance

In the late 1990s Canadians were introduced to a new form of insurance to protect against the financial impact of a major health-changing event, such as a diagnosis of cancer, heart attack, or stroke.

Statistics showed that with advances in medical technology and many new medications available, patients were surviving conditions that once had low survival rates. However, the problem patients faced post-treatment was the financial damage caused during their long road to full recovery.

Doesn’t a traditional disability policy cover my loss of income?

Benefits paid under a personal policy or a group benefits package end once the individual returns to a regular work cycle. The problem arises if the person cannot resume full-time activity and their MD recommends working part-time. Unless the policy provides partial payments based on the actual loss of income (many do not), those coming back to work after a major illness or accident, are shocked to discover that their disability benefits end.

Another factor facing those with a prolonged disability is that all personal and group insurance packages have a waiting period from 7 days to 365 days. Benefits are not paid until the waiting period is satisfied. The majority of Long-Term Disability (LTD) policies issued under a group benefits package have a waiting period of 120 days.

The other key fact disability recipients discover is that while benefits are paid monthly, there are often unexpected upfront expenses such as home nursing care, wheelchairs, and other expensive medical devices needed.  

What does Critical Illness Insurance do differently from a traditional disability policy?

A CI policy pays out a tax-free lump sum upon diagnosis of one of 24 covered conditions after a 30-day waiting period. The individual must survive the 30 days and satisfy the definition of the various covered conditions.

The insurance money can be used for any reason – paying down debt, for expensive private treatment not covered by our provincial medical plans, or reinvested to produce a stream of income to replace lost wages or salary.

The better CI policies cover most forms of cancer (there are exclusions or limitations on some non-life-threatening cancer diagnoses), heart disease, stroke, MS, Parkinson’s, blindness, deafness, the inability to speak, or upon becoming a para or quadriplegic.

Some policies, sold at a lower premium, cover only what Insurers call “The Big 3 Conditions” which are cancer, heart disease, and stroke. Statistics show that over two-thirds of all CI claims are related to these three conditions.

How has the product evolved over the 25 years since introduced to Canada?

When I entered the industry in the early 1980s, cancer was estimated to affect 1 in 3 Canadians. By 2022 the figure has been revised to approximately 1 in 2 Canadians, so carefully examine the types of cancers that are covered by a policy that you are considering purchasing.

While females live longer than males and pay lower life insurance rates, the opposite occurs with disability and Critical Illness claims. Female rates for a traditional disability policy are, in many cases, double what an age-equivalent male would pay. 

Premiums for CI contracts have increased by up to 30% over the last two decades for both male and female policies. This increase is strictly due to the volume of claims for both sexes. We feel rates for females on a CI policy offer better value than rates on a traditional disability policy.

Smokers have also seen a rise in premium rates since the 1990s, as many of the CI claims have a direct correlation to smoking status. There is no denying the statistics and Insurers have simply added this extra risk to their premiums, especially for those now in their ’50s or ’60s.

Creative add-ons and Riders have been introduced, one of which is the “Return of Premium” option. RoP refunds up to 100% of all paid premiums at a set age if no claims are submitted. This option makes the product extremely attractive for those that lead an active & fit lifestyle and feel their healthy lifestyle reduces the odds of contracting a major illness or accident.

When the CI policy was introduced in Canada, benefits ended at either age 65 or 75. Some carriers now offer a “Level Term to age 100” which gives lifetime coverage for those that wish to have protection later in life. Again, statistics show that the incidence of being diagnosed with the conditions covered under a CI policy increases with age.

Is a CI policy better than a traditional disability policy?

The short answer is, Not Necessarily; there is no blanket answer to this question as everyone’s needs are unique.

A CI contract does not cover the inability to work due to a sports injury (i.e., breaking a leg skiing or playing soccer). Consider a personal disability policy in addition to Critical illness Insurance if you are concerned about the financial impact of not working due to injury.

A CI policy does not cover psychosomatic conditions like chronic depression and anxiety. Personal disability or group LTD packages would probably cover these conditions.

If you feel vulnerable to long-term financial risks associated with a major illness or accident, book a consultation with your insurance broker to review both products. Ask your advisor what claims they have been involved in with their clients, and how the payment of benefits impacted their client’s recovery.

More to come on the subject of CI insurance in a future newsletter/blog